An investor's guide to choosing the best investment plan for 5 years

Investing your hard-earned capital for the future can be a daunting task. It largely depends upon the investment plan that you choose. Another factor that determines your investment return is the period of investment. It has been observed that long-term investment plans yield the maximum results. The best investment plans are for 5 years. Keeping in mind the above factors, along with your ability to tolerate risks, will help you shortlist the right investment plans which can help you achieve all your financial goals.

With many investment options flooding the market, selecting an ideal long-term investment plan that offers good results, can be quite overwhelming.

With this article, we will provide you with a comprehensive guide to help you shortlist the best investment plan for 5 years. So, read on to learn more.

Choosing the best investment plan for 5 years

Whether you want to choose the best investment plan for 5 years or opt for a plan with a shorter duration, follow this three-tier process:

• Identify,
• Understand, and
• Estimate.

1. Identifying your financial goals - You can identify your financial goals by answering the primary question - Why? The process of choosing the best investment plan for 5 years or for a shorter term begins with identifying the basic reason for needing an investment plan.

Reasons for needing an investment plan:

• Aim of your financial goal - What do you want to achieve in the next 5 years?
• Identify the purpose - Are you saving money to build a house, plan a wedding, or simply to build an emergency fund?
• Covering your losses - Do you have the financial resources and the risk-taking capability for investing in an investment plan for 5 years?

Clarity about your financial goals will make it easier to identify and shortlist the best investment strategy to achieve them.

2. Understanding your financial goals - Investment plans are goals-oriented. They help you plan your finances in a way that will help you achieve your financial goals. Understanding your financial goals will help you determine if it is a long-term goal or a short-term goal. Choosing the right kind of investment plans based on their duration can make your goals easily achievable. If your financial goal involves education, it is a long-term goal for which you will need to choose the best investment plan for 5 years. If buying your dream vehicle is the goal then the investment plan you opt for will be of a shorter duration.

3. Estimating your risk tolerance - Most investment plans involve investment in the market. Since the market is volatile, investing often comes with its own share of financial risks. Having the financial ability to bear and surmount these losses is defined as risk tolerance capability. Risk tolerance is defined as your ability to tolerate fiscal losses.

Risk tolerance has a critical role to play in selecting the right investment plan especially for longer durations of 5 years. Depending upon the risk tolerance ability, you can choose from two types of investment plans:

• Low-risk tolerance - If your risk tolerance is low, then you can invest in plans that guarantee the safety of your investments. Such plans often offer lower returns as compared to the usual investment plans. So, whether your fiscal capacity is not optimal or you are a first-time investor who wants to play it safe, these plans can help you invest your money safely.
• High-risk tolerance - If you have the ability to field high risks, then you can opt for investment plans that offer greater returns. In such plans, the capital is invested in diverse portfolios, which promises larger returns on your investment. Since these investments are affected by market fluctuations, there is also a higher risk factor involved.

Selecting an Investment Plan

Once you have established your financial goals, the next step would be to choose an investment plan that would help you best to achieve them. When you are looking for the best investment plan for 5 years that is in sync with your financial goals, here are some things you must keep in mind:

• 1. Duration of your investment plans - The duration of your investment will be determined by your financial goals. For short-term goals like taking an international trip you can opt for an investment plan with a short duration. For long-term goals like higher education for children or marriage, you will have to choose from the best investment plan for 5 years.
• 2. Diversify your funds - Ensure that the investment plan you opt for further invests your money across varying assets. This reduces financial risk and gives you maximum return.
• 3. Fees and Expenses - Investment plans often come with charges such as handling fees, additional expenses and hidden costs. Unexpected deductions from your returns can throw your plans off track. Choosing an investment plan by keeping these in mind will protect your investment.
• 4. Easy access to your funds - The best investment plans are the ones that offer you liquidity of funds.
• 5. Tax implications - Work out the tax implications of your investment plans to minimise the tax liabilities associated with them.

Types of Investments

With growing awareness and opportunities, many options are available today for investing your money. It is best to understand the features, benefits, and risks of each plan before shortlisting the one that is best for you.

Some of the best investment plans for 5 years and varying durations include:

Stocks, Bonds, Mutual Funds, Exchange-Traded Funds (ETFs), Real Estate, Peer-to-Peer Lending, gold and other precious metals, chit funds etc.

Quick Final Tips

• If your time horizon is 5 years, always invest with a long-term perspective.
• Diversify your investments to minimise risk and maximise returns.
• Keep yourself up to date with updates on personal finance and investment. This will help you make informed financial decisions.
• Follow your investment plan diligently.

Conclusion

Periodically reviewing and adjusting your investment plan will keep it aligned with your financial goals, and over the next 5 years, you will be able to create a robust investment plan.